The crisis of 2011 – in 2010? — Crooked Timber

Back in July, no one seemed to be talking about a shutdown of the US government following the Dems loss of control of the House. Now the only question is – when?

David Dayen at FDL says it could be as soon as December (I don’t understand the mechanics well enough to confirm or reject this claim). Among those looking forward to the shutdown, the most notable, for a variety of reasons is Alan Simpson. Obama must really be feeling the gratitude there.

There’s still a chance that the Dems can manage a pre-emptive capitulation/collaboration so massive that some on the other side will be willing to cash in their gains without taking the risk of a shutdown. I imagine that would entail, at a minimum, full extension of the Bush tax cuts, effective repeal of the health care bill, no more money for the unemployed, Social Security ‘reform’ and a bunch of spending cuts directed at the tribal demons of the Tea Party. Of those, health care is the only one where I can see the White House taking a stand. I’m less clear about the priorities of the Congressional Dems.

Posted via email from John’s posterous

54 thoughts on “The crisis of 2011 – in 2010? — Crooked Timber

  1. After Obama’s performance we cannot discount the possibility of his vetoing his own budget as a way of reaching out to his opponents.

  2. A December shutdown allows the affected staff to stay home during the Xmas/New Year period, during their winter – just perfect timing to contemplate turning off of the central heating once the salary stops coming in. “Sorry guys, but you have to bring your Xmas presents down to the basement if we are to keep the fire going!”

    However much Democrats can suck, Republicans are suckier. Forcing a shutdown is just mean and tricky, and it causes unnecessary injury to third-parties, namely the staff on the government payroll.

  3. It seems that the US is aspiring to reach the performance heights of other great democracies, such as Iraq and Afghanistan.

  4. Can there be any doubt that the USA is heading towards a major crisis? A perfect storm of disasters (of its own making) is engulfing the USA. The disasters, already begun or approaching soon, are;

    1. Financial collapse and a great depression.
    2. Energy and resource crisis.
    3. Civil crisis.
    4. Political and governence crisis.
    5. Endemic corruption headed by the ruling Oligarchy or Kleptocracy (pick your term).
    6. Failure of intellectual humanism and resurgence of religious and right wing fundamentalism.

    The US is facing all these crises and every step it takes now is in the wrong direction, deeper into the trouble it has created for itself by an amalgam of unfettered capitalism and right wing anti-humanist, anti-scientific ideology. In Darwinian terms, the US empire is unfit to survive and it won’t. It will collapse. Mind you, the collapse will take decades and it will drag half the world with it.

  5. @Ikonoclast
    No the collapse will be just like the collapse of the USSR, sudden and all over very quickly although given the belligerent nature of the US there will no doubt be much more violence along the way. It is pretty clear that the US is becoming ungovernable and surely there must by now be quite a few people considering how they would be better off if the whole thing split up into several different countries each with a more coherent culture eg the west coast, the north east, latino greater mexico, the mid west, lower canada, etc.

  6. @BilB
    It seems to me that the republicans are not happy that the US is on its knees and wont be happy until they have the right to bear slaves.

  7. Come on… you hear dire warnings like this all the time. Are you telling me that the government is going to shut down to the point that Social Security checks are not sent out, and all the old people on Social Security are going to Starve to death? I highly doubt this. But if you are saying this is the case, keep me informed, it would be a major event, not just for the USA, but in the history of the world.

    Cheers! RichGriese.NET

  8. @Rich Griese
    Yes it will be a major event in the history of the world. The real sign that the end is nigh is QE2, isn’t printing money on a grand scale what all empires due in the lead up to the final collapse? What the US kleptocracy reminds me of is the behaviour of the french aristocracy as the ancien regime was crumbling and we all know how well that ended.

  9. Yes, Fran,

    “It seems to me that the republicans are not happy that the US is on its knees and wont be happy until they have the right to bear slaves”

    The curious thing about this is that this is exactly what the Grand Old Party was against. Lincoln must be turning in his grave. Now the GOP in true corporate fashion has taken every profitable aspect of Lincloln’s vision and sold or abandoned that which isn’t.

    Ian Millis, I agree with your perception

    “What the US kleptocracy reminds me of is the behaviour of the french aristocracy as the ancient regime was crumbling”

    However in my economic simplicity I see only good coming from Obama’s QE2 writing down of the horrendous amount of George Bush’s economic war losses by printing money in an environment of stagflation. The US living standard has been squeezed between net imports on the one hand and zero earning power war exports on the other. Caught between their “sop and their hard face” so to speak. However I think that the “money” should be dispursed stimulating new industry on a broad small business face. How that would be done I don’t know.

  10. Donald Oats, are you forgetting the Right’s capacity to sell itself?
    After 2007, the Right ought to have been on the run for ever, yet in Britain, Australia and the
    US, it has not only be able to hinder and eventually in many respects “shut down democratic government, but actually again fob blame for this on to their hapless centrist opponents.
    Of course the Right will push for a shutdown. This will be predicated on their confidence in their ability to shunt blame onto the Dems, for this, as consequences worsen. In a lot of ways, reminscent of the “Dismissal” of 75 and the rise of Reagan and Thatcherism, in the late seventies.

  11. @Rich Griese Only libertarian socialism.
    BilB, my knowledge of history is more developed than my knowledge of economics so I’m just commenting on the pattern of behaviour and it’s similarity to previous imperial declines – military over-reach, blustering aggression designed to disguise growing weakness, hollowing out of the real economy as it is replaced by a military economy that then fails as the plunder runs out, then currency clipping, or these days printing money to keep everything going, followed by accelerating crises as confidence in the currency evaporates as a result. I suspect every time a crumbling empire has done this there have been apparently valid arguments in favour of it. Given that the US power elite has for decades treated small business with pretty much the same contempt as it has treated the unions and other workers in general I can’t imagine any money would ever be used in the way you suggested.

  12. The mechanics of the 2010 shutdown would be quite similar to the mechanics of the 1995, Gingrich-led, shutdown.

    But this time round the politics are different:

    1. Next year isn’t a presidential election year. In 1995 Bob Dole worked hard to end the crisis in order to maximise chances of his winning for the GOP.

    2. Gingrich’s egomania won’t be an issue. (There may be some other egomaniac in the GOP who will play Gingrich’s role this time round, however.)

    3. The Tea Party forms a political cheer group who will press for a continuation of the shutdown. There was no group like that in 1995.

    4. The US is poorer, more desperate and more inclined to insanity in 2010 than it was in 1995.

    5. Obama’s deficit is a truly stupendous thing. He has personally presided over the addition of 4t or about 30% to the US deficit.

    6. Obama isn’t Clinton.

    Brace for some fireworkd.

  13. “The US is poorer, more desperate and more inclined to insanity in 2010 than it was in 1995”

    Wow. And then there is the oil price at $80+ and picked to rise to $100 (maybe that will become Euros) next year. But McDonalds will do well out of all of this.

    IanM, the US does help small business but more consistently in the agricultural sector. Otherwise I agree with you.

  14. Katz

    The debt ballooned under Bush – household debt from 276% of GDP in 2001 to 359% in 2008 (as at 2009 it’s at 371%); household sector debt from 72% in 2001 to 97% in 2008 (and 97% in 2009). TARP was a Bush initiative. So was spending on wars while cutting taxes. Obama is the janitor after the party.

  15. Ian Milliss :
    @Rich Griese
    Yes it will be a major event in the history of the world. The real sign that the end is nigh is QE2, isn’t printing money on a grand scale what all empires due [sic] in the lead up to the final collapse? …

    No, it isn’t. For instance, when the Persian Empire fell to Alexander the Great it had vast amounts in its treasury. Likewise, Constantine the Great had made lasting reforms to Rome’s previously unsound currency which had taken effect by the end of the western Roman Empire (in the east, the reforms kept the currency sound during centuries of mostly slow imperial decline with few blips, although it did founder in the last few centuries of faster decline). The Dutch never suffered that in the lead up to their loss of their colonies either, if you want to confine that to modern economies. I think Portugal was pretty sound that way, too (Salazar’s early 20th century economic training probably affected that).

  16. @BilB That’s interesting, what form does the small business help take? Do you mean by way of agricultural protectionism or by way of targetted expenditure in agricultural communities, ie basically pork barrelling? Or is there some form of regional business development like exists in a fragile sort of way in Australia? I’ve become particularly interested in regional creative industry development since Crean picked up the potentially synergistic dual portfolio of arts and regional development.

  17. That I know of: protectionism; corn ethanol subsidies; disaster relief; farm specific legislation to enhance farm incomes.

    Tere ar a whole lot of ways that government can……extremely belatedly……promote regional development. The traditional way was with regional depreciation allowances. but with today’s lease financing environments this is fairly nul. Probably one of the most valuable initiatives to do immediately will be to promote local biofuels for local use, by what ever method. Create more local airfields for small aircraft particularly the new generation of electric powered aircraft, and develop and instal a “highway in the sky” (HITS) system. The US has 5000 airfields we have a few hundred official fields. This promotes connection and aids mobility of scarce human resources as well as aiding rapid delivery services. National broadband is vital. Promote new arrival to Australia to become rural rather than city dwellers. Anything that enables businesses to operate in rural regions as effectively as city regions will slowly increase commercial acitivity in rural regions and support population stability. There is oodles more but I have to do other things for a while.

    Why are you interested? are you in Crean’s office, or do you need material to attack him with?

  18. @Katz
    Katz says “5. Obama’s deficit is a truly stupendous thing. He has personally presided over the addition of 4t or about 30% to the US deficit.”

    This is a common complaint but why the ongoing concern with public deficits that absolutely pale beside the size of private sector debt in many once industrial nations. I dont think people get it. This is not just a US problem – its everywhere in previously healthy economies. The middle class is massively in debt, the poor are foreclosed on and the only ones getting away with public deficit bashing wear the same colours as the financial titans who got rich from piling others into debt. The greatest con of all time and more debt is not going to fix this one.

    Golden rules for conservatives in the US (and in Britain and elsewhere).
    1. Impoverish millions and ensure the vast majority are in debt and cant live any other way. 2. Do nothing about rising personal debt across the nation for three decades while it conflagrates, except offer more cheap credit.
    3. Ignore anything to do with jobs and employment.
    3. Permit all firms to outsource all jobs to developing nations and no tax required.
    4. Mumble about comparative advantage and the long run.
    3. Complain loundly about public debt when millions are unemployed and relying on benefits.
    4. Dismantle social security, health systems and the government.
    5. Throw yet more money in the form of QEs at a nation sick from its own debt.
    6. Refuse to countenance higher taxes and move your own personal money to tax havens.

    Surely they jest?

  19. @P.M.Lawrence OK, I apologise for sloppy rhetorical use of “all” but wouldn’t those be cases of defeat rather than collapse? The split of the Roman empire was not exactly the end of it so i’ts obviously a bit more complex though and wasn’t Portugal a case of defeat by social modernism.
    BilB those were the forms of support that I thought it might be. My interest is based on being on a few local council advisory committees in a regional area currently dependent on coal mining. I’m sure the problems inherent in that are obvious. NBN coming early to regional areas could be one of the most significant events here in decades and the fact that NBN is basically cultural infrastructure rather than just simply communication infrastructure also has huge implications.

  20. IanM,

    I presume you are in the Hunter Valley. That is a different proposition as there is plenty of commercial activity nearby. A friend of mine who is an economist, a most interesting person ,and was in Frank Creans office in the seventies lives in that area, and after a lifetime of power performance in the financial world is learning all about country life, its joys and its short comings.

  21. This is a common complaint but why the ongoing concern with public deficits that absolutely pale beside the size of private sector debt in many once industrial nations.

    This may very well be true. But the question at issue here is why Republicans may choose to shut down the US government. It is not about the relative seriousness of two different kinds of debt.

    Who says that Republicans need good reasons to do anything. As politicians, all they need is plausible reasons.

  22. IIRC Clinton played a game of chicken in similar circumstances with the Repugs just before the Lewinski affair and they blinked first.

  23. As I suggested above, the circumstances weren’t altogether similar.

    And indeed this time round they may well be different enough to cause a quite different outcome.

    But arguing about the future is a trap set for fools. So at this stage, I’d be interested in any argument that suggests that the circumstances are essentially similar to those in 2005, from a political point of view.

  24. @PM Lawrence

    Constantine the Great is not an appropriate baseline. He died in 337. The western Roman state continued until 476 when the treasury and the currency were both valueless. Indeed one argument is that the west Roman elite had appropriated so much of the public revenue that there was nothing left to maintain the basic services of the state.

  25. @Alan
    comments “the west Roman elite had appropriated so much of the public revenue that there was nothing left to maintain the basic services of the state.”

    Well that sounds surprisingly similar to what is happening to the US and many western so called industrialised nations now doesnt it?

    The money to run the basic services of the state has apparently dwindled and dwindled or so we ordinary folk are told. Governments are constantly crying poor and selling everything that can be unbolted as quickly as they can instead of planning to invest or maintain existing base services…to the point where they just cant manage it as well as they could 50 years ago with fewer taxpayers and a smaller tax base. In fact most public assets being sold now (like QR) were built by prior governments and in some cases many decades ago.

    I wouldnt call it efficiency. Id call it complete incompetence in economic policy letting the elite rob everyone else including the state. Its exactly what is happening.

  26. One good thing is perhaps that by the time the GFC really plays out fully…the banks are going to need another bailout….they already have their executives “swarming” over capital hill to get their foreclosure frauds sanctioned by weak government.

    The only thing the little guys have on the banks, given complicit government, is lawyers and class actions (not just fraud class actions but even one case filed under racketeering and corrupt organisation laws) and this is their only defence…so go the lawyers for the foreclosed in the US!

    Litigate the share prices of the banks away until it really hurts.

    Its hit back time.

    http://www.news4jax.com/money/25833076/detail.html

  27. If someone wants a free PhD topic, it would be interesting to analyse why the east Roman empire outlasted its western counterpart by a thousand years (including by the way, an unrivalled record for monetary stability that kept the currency at Constantinian levels into the 1100s) Hint, the east Roman state wasn’t nearly as indulgent to its elites in fiscal matters.

  28. Alan

    Already been done. The Eastern Empire had much greater cash flows than the Western, and a much stronger urban base. The Roman Empire was basically a federation of towns with an army and court attached. Eastern towns were less affected by late Empire trends, so were able to keep the army and court alive.

  29. I’m not at all convinced. Urbanisation collapsed after the reign of Justinian with the notable exception of Constantinople itself. If the cities provided the cash flow then it should have disappeared in the sixth century in the same manner as in the west.

  30. I’m reluctant to call this the beginning of the end of US preeminence – it’s a nation rich in human resources and resourcefulness – but it likely will get worse before it gets better. It seems to me that (like most democracies) politics relies very much on the ignorance of it’s voters and politicians in their ability to press peoples buttons (effectively short-circuiting the urge to get informed, to think and to consider and foresee consequences). That the Republicans would willingly bring US government business to a standstill – as our opposition here would in an instant if they could – seems hard to deny but only as long as they are confident they can make the resultant mess look like the other side’s fault. Still, misplaced confidence in that is probably a given.
    To me the extremism of TeaPartisans (One Nation comes to mind for some reason) will not be eased by giving in to them but probably it will see Dem and Rep policy shift that direction in a misguided attempt to win back some of that demographic.

  31. Fran Barlow :IIRC Clinton played a game of chicken in similar circumstances with the Repugs just before the Lewinski affair and they blinked first.

    pleeeze don’t throw me in the briar patch?

  32. Alan and Ken

    Alan – nice reference – but note the date. The East went through a bad patch in the 7th and 8th centuries. The West collapsed in the 5th. The East was rich enough in the 4th and 5th to bribe, defeat or deflect barbarians (often on to the West), ride out plague and maintain an effective state. The West was not (backed up by a hurried check of a few standard texts).

    Larger point is that the state structure of the West was unable to survive transition to new forms – based more on the manor and the super-tribe (Goths, Alamanni, Burgunds, Franks). In our own times the US may be particularly challenged by transition to a low-growth, comparatively resource-poor economy under stress from climate change and other environmental issues. Australia may do better, being more insulated (a la Eastern Empire). Russia, as someone remarked, has pre-adapted.

  33. @Peter T

    A more highly developed commercial economy in the Eastern Mediterranean also helped the Byzantine Empire. It’s annual tax revenues are estimated to be twenty times those for the Western Empire. The consequences included an army that was better paid, hence more politically reliable and less dependent on barbarian mercenaries, and a government better able to subsidize–bribe–possible foreign invaders.

  34. Ian Milliss :
    @P.M.Lawrence OK, I apologise for sloppy rhetorical use of “all” but wouldn’t those be cases of defeat rather than collapse? The split of the Roman empire was not exactly the end of it so i’ts obviously a bit more complex though and wasn’t Portugal a case of defeat by social modernism…

    It wasn’t defeat in the case of Portugal and Holland. Portugal’s dictatorship fell in the face of outside constraints, and those who took the spoils didn’t defeat it; the largest internal factor at work was the double dipping conscription that recalled middle aged professionals for their skills, and so didn’t have conscription’s usual popular support from all but the young. Even when there had been defeat, prior decline had usually fed that.

  35. Alan :
    @PM Lawrence
    Constantine the Great is not an appropriate baseline. He died in 337. The western Roman state continued until 476 when the treasury and the currency were both valueless. Indeed one argument is that the west Roman elite had appropriated so much of the public revenue that there was nothing left to maintain the basic services of the state.

    Look again at what I wrote. Constantine the Great is not a baseline. Rather, his currency reforms had taken effect by the time of the fall of the western empire; everything was financially sound when the barbarians broke in at the beginning of the 5th century (that should be the baseline). It is not true that either the treasury or the currency were valueless then; by 476, as a result of barbarian seizures of the revenue base, the central treasury was – but the currency was not (you can’t pay off your military superiors with depreciated coin). Your comments about the effects of the bloated public sector are largely accurate, but only directly so for the period before the reforms. After the reforms, the effect was largely indirect, from the amount of resources being or that had been withdrawn from the revenue base into local, villa based autarky – avoidance (Byzantium eventually worked out the Kapnikon, or Hearth Tax, to tap into locally based economies).

  36. Peter T :
    Alan
    Already been done. The Eastern Empire had much greater cash flows than the Western, and a much stronger urban base. The Roman Empire was basically a federation of towns with an army and court attached. Eastern towns were less affected by late Empire trends, so were able to keep the army and court alive.

    When the two empires were contemporary, yes (but remember, the town and cash flow thing was tapping into economic activity elsewhere). But with the Muslim conquests these things soon became concentrated in Constantinople, although Salonika remained significant until maybe the 11th century (after the Fourth Crusade created rival claimants to legitimacy, regional capitals briefly emerged).

  37. Alan :
    I’m not at all convinced. Urbanisation collapsed after the reign of Justinian with the notable exception of Constantinople itself. If the cities provided the cash flow then it should have disappeared in the sixth century in the same manner as in the west.

    See my earlier replies. It actually started to collapse then, but took longer than that, and the cities’ cash flow was in effect a toll on surrounding economic activity – which became less important as that began to be tapped more directly, in cash with the Kapnikon etc., and in kind with the establishment of “Themes” to support military structure.

  38. QE2 is not prininting money. Let us go to Jim Hamilton at econbrowser

    “Bunny: Why do they call it the quantitative easing? Why don’t they just call it printing money?

    JDH: Actually no money is going to be printed. The Fed will pay for these purchases by crediting accounts that banks have with the Fed. Although it is true that banks could ask to withdraw these funds in the form of green currency, they currently are showing no interest in doing so. And before banks did start to want to withdraw these funds as money, the Fed plans to sell the assets off to bring the reserves back in. There is no plan now or in the future to “print a ton of money”.”

  39. !PM Lawrence

    Fine point, but I’m persuaded by Peter Heather’s argument that the contracting revenue base after the loss of North Africa and Spain inevitably led to devaluations of the currency. Paying soldiers in heavily-clipped coins does work, it’s just that the quality of the army deteriorates rapidly. At the same time Italy, in particular, supported a large and entirely useless class of great landowners, almost all senators, whose principal social function was extracting immunities and revenues from the treasury. Most of them managed to survive the empire and happily continue their parasitic careers under the Gothic kingdom which followed.

  40. @Hayek’s horror
    QE2 is printing money – same effect – only is laundered through the same banks that caused the crisis. It is printing money. They would be better off investing in public infrastructure and creating jobs and closing some of their markets and protecting their domestic production, but you cant tell the repbubs that. The place is full of deficit hawks who dont want to pay higher taxes.

  41. Alan :
    !PM Lawrence
    Fine point, but I’m persuaded by Peter Heather’s argument that the contracting revenue base after the loss of North Africa and Spain inevitably led to devaluations of the currency.

    Ah… that’s misleading. Remember how trading towns tapped into economic activity elsewhere? Much North African revenue showed up in Italy, while trade patterns continued (they weren’t much disrupted until Islam, according to Pirenne). Many Italian resident landowners continued to receive rents from North Africa even after the Vandal conquest, at least for a while until they were expropriated (no doubt for diplomatic reasons, some weren’t). And, of course, inward bullion flow from West African trade with North Africa continued (the caravan routes had opened up during the 4th century; apparently the introduction of the camel saddle had just made it practical). Some fee that this flow was what made hard money remain practical, at any rate until Islam cut areas off.

    Paying soldiers in heavily-clipped coins does work, it’s just that the quality of the army deteriorates rapidly.

    That wasn’t the point. The point was that good coin was needed to pay off military superiors – the barbarians acting in their own right, not the ones who were Roman mercenaries.

    At the same time Italy, in particular, supported a large and entirely useless class of great landowners, almost all senators, whose principal social function was extracting immunities and revenues from the treasury. Most of them managed to survive the empire and happily continue their parasitic careers under the Gothic kingdom which followed.

    Unimportant, for this purpose; they represented wealth transfers, which affected the viability of the state-military complex but not the above reasons for hard money’s remaining viable.

  42. Drat. That should have been:-

    Alan :
    !PM Lawrence
    Fine point, but I’m persuaded by Peter Heather’s argument that the contracting revenue base after the loss of North Africa and Spain inevitably led to devaluations of the currency.

    Ah… that’s misleading. Remember how trading towns tapped into economic activity elsewhere? Much North African revenue showed up in Italy, while trade patterns continued (they weren’t much disrupted until Islam, according to Pirenne). Many Italian resident landowners continued to receive rents from North Africa even after the Vandal conquest, at least for a while until they were expropriated (no doubt for diplomatic reasons, some weren’t). And, of course, inward bullion flow from West African trade with North Africa continued (the caravan routes had opened up during the 4th century; apparently the introduction of the camel saddle had just made it practical). Some fee that this flow was what made hard money remain practical, at any rate until Islam cut areas off.

    Paying soldiers in heavily-clipped coins does work, it’s just that the quality of the army deteriorates rapidly.

    That wasn’t the point. The point was that good coin was needed to pay off military superiors – the barbarians acting in their own right, not the ones who were Roman mercenaries.

    At the same time Italy, in particular, supported a large and entirely useless class of great landowners, almost all senators, whose principal social function was extracting immunities and revenues from the treasury. Most of them managed to survive the empire and happily continue their parasitic careers under the Gothic kingdom which followed.

    Unimportant, for this purpose; they represented wealth transfers, which affected the viability of the state-military complex but not the above reasons for hard money’s remaining viable.

  43. Um, Pirenne is just a tad outdated. While his insights are interesting he really was not working from the level of data available to contemporary historians.

    North Africa returned more revenue to the court than any other province and its loss, in revenue terms, was catastrophic. The loss of Spain, which was the Peru of the Roman empire, was not much less catastrophic. Nor can one really state the fiscal depredations of the senatorial class, which deprived the state of large revenues, are unimportant in a discussion of the revenue.

    The private rent payments from North Africa did happen, but for a vanishingly short time. The Vandals occupied the North African provinces in stages. Once they secured imperial recognition for their conquest in 439, their next act was the seizure of all senatorial estates. We are talking about a period of 4 or 5 years and I am not absolutely convinced that during those 4 or 5 years the local Vandal governor necessarily quaked in his boots every time a bailiff arrived from Rome.

    Nor does the argument that barbarians would accept only good coin, a slightly different argument from your first, really stand close examination. Barbarians were paid in bullion. Attila, for instance, demanded and got a yearly tribute of 750 lbs of gold from the eastern empire in 440. Presumably they were less convinced by the imperial currency than commenters in the 21st century.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s